April. Company financing - Capital increases Million Billion Million Million

Transcription

1 April 2013 Company financing - Capital increases Billion Million Million 11.1 Million 20.1 Million Million 0.3 Million 1.52 Billion

2 Business Areas

3 32 In 2013 international financial market stress eased with respect to 2012 as the promise of sustainable global economic growth became more palpable. In the Eurozone, the financial health of the so-called periphery continued to improve. The equity markets rallied notably and volatility eased on the back of improved general sentiment. Spanish equities managed to shake off three straight years of correction, outperforming most European exchanges. In fact, equity products, particularly shares, dominated trading volumes across the platforms managed by. Throughout the year forged ahead with its business diversification policy, attempting to take advantage of the opportunities thrown up by new market regulations. The Group generated a net profit of million in 2013, up 5.7% over 2012 levels. The healthy earnings performance positions the company to extend its hallmark shareholder remuneration policy. Specifically, the Board of Directors plans to ask its shareholders to approve the distribution of a final dividend of 0.65 per share at the upcoming General Meeting (if approved the dividend will be paid out on 9 May 2014). Inside s Spanish Stock Exchange.

4 33 The Group s 2013 earnings performance provides a fresh demonstration of the company s ability to evolve and adapt to emerging circumstances by implementing enhanced market access systems (e.g. co-location and remote access services), encouraging the configuration of more flexible market players such as the new Non-Clearing Members and guaranteeing the highest possible standards of trading quality at all times. Despite growing international competition among share trading centres, the Spanish stock exchange remains the benchmark platform, accounting for the bulk of trading in the Spanish companies whose shares are listed with. Thanks to ongoing business diversification, in 2013 covered 114% of its cost base from revenue not linked to volumes, marking growth year-on-year. This statistic endorses the company s strategy of bolstering alternative revenue sources in order to hedge against less favourable market environments while retaining its ability to leverage favourable circumstances. In 2013 revenue derived from trading related activities accounted for approximately 56.7% of total Group revenue (38.2% of the total generated by equity trading), almost seven points more than in This figure is the aggregate of the revenue recognised by the Equities, Fixed Income and Derivatives Business Units, whose earnings performance is analysed in greater detail below. Adding in the Clearing and Settlement Unit, whose business is intricately linked to trading volumes, the trading divisions accounted for an aggregate 83.5% of consolidated 2013 revenue, again a higher weighting than in The company is unwaveringly focused on cost control. In 2013 operating costs increased by just 0.3% (less than the 0.6% increase registered in 2012), evidencing once again the company s proven ability to fine-tune its budget in line with forecast inflation (0.3% in 2013). Robust operational gearing 78% 90% 106% 109% 105% Costs Source: Revenue Revenue not linked to volumes 103% 112% 118% 114% Coverage of costs by revenue not linked to volumes s business model is predicated on four cornerstones: (i) integration of the products it trades across its various platforms into a single value chain; (ii) diversification of underlyings; (ii) in-house technology development; and (iv) nurturing the ability to react to emerging regulatory circumstances by offering customers solutions that leverage existing resources. One of the core components of the company s strategy is the prudent management of its resources, as is evident, above all, in the cost-to-income ratio, which measures costs incurred as a percentage of each unit of income generate This metric stood at 32.2% in 2013, 13 points below the sector average. The Group also performed well compared to its rivals in terms of its return on equity (RoE), which stood at 35.9% in 2013, 24 points above the global sector average. In parallel, reiterated its commitment last year to a range of initiatives and alternatives designed to enable the Spanish stock exchange to contribute to the development and transparency of the securities markets and to facilitate small and medium sized companies access to financing. Against this backdrop, the SOCIMIs segment was set up within the MAB, REGIS-TR was rolled out and the alternative fixed-income market, MARF, was create In addition, in compliance with EMIR segregation requirements, MEFF was decoupled from Clearing in order to segregate this exchange s central clearing house activities from its trading activities.

5 34 Equities The Equities business remains the most important leg of s model. In 2013 it contributed 38.2% of the Group s total revenue and 39% of EBITDA; this revenue was generated by activities derived almost exclusively from the trading of shares, ETFs, warrants and certificates on its platforms. In 2013, this business line s contribution to Group revenue rose a significant 1.2 percentage points over the 2012 contribution; the EBITDA contribution was 1.9 points higher. The growth in profitability was driven by topline growth of 6.8%, coupled with lower costs. EBITDA in this division amounted to million (+10.4%), which is the result of subtracting expenses of 31.4 million from revenue of million. Equity. Key figures %...for business Revenue (million euros) 115, , Costs (million euros) -31,482-32, EBITDA (million euros) 84,474 76, for revenue sources Trading (million euros) 704, , Shares Cash (million euros) 699, , Number of trades 48,541,400 40,553, Average trade value (euros) 14,410 17, ETFs Cash (million euros) 4,284 2, Number of trades 65,493 55, Warrants Cash "premiums" (million euros) Number of trades 179, , Total instruments traded (million) 200, , Capitalisation of shares (million euros) 1,045, , Source: Jorge Yzaguirre, Director of Equities and Derivatives,, during the Morningstar Awards.

6 35 As was the case when analysing this division s earnings last year, before detailing the revenue drivers, it is worth highlighting once again this year the unit s healthy cost performance. The costs incurred by the Equities division reduced by 0.8% over The company remains strategically committed to austerity and resource rationalisation without neglecting the excellence it aspires to in terms of the products and services it offers the market. Share trading on the Spanish stock exchange ( ) million euros 1.800, , , , ,00 800,00 600,00 400,00 200,00 0, ,00 45,00 40,00 35,00 30,00 25,00 20,00 15,00 10,00 5,00 0,00 millions of trades Volume traded (million euros) Number of trades (mill) Source: Impact of financial crisis on the IBEX 35. (June 2007-December 2013) Source: 17,000 15,000 13,000 11,000 9,000 7,000 5,000 Max variation: -9,989 points % From low: +3, % 5, July

7 36 The root cause of the growth in business volumes is the shift witnessed in investor sentiment, particularly from September on. This change was apparently driven by the improved outlook for the Spanish economy, which managed to emerge from recession, as technically defined at least. Sentiment was further helped by the culmination of bank restructuring and the reduction in perceived sovereign credit risk. Spain s corporates looked to the equity markets for financing and this also boosted equity trading volumes. Business volumes were also buoyed by the lifting of the ban on short positions by the securities market regulator, the CNMV, at the end of January The volume of shares, ETFs and warrants traded in 2013 by value amounted to billion, up almost one percentage point on 2012 volumes. October was the strongest month, marking a record number of monthly trades, at 6.4 million. Fourth-quarter 2013 growth in ETF trading volumes was spectacular. This was fuelled largely by expansion and development in ETFs over the IBEX 35 index, in which assets under management surged 248%, with over 1 billion of assets tracking the blue chip index for the first time. The year was marked by renewed international investor appetite for Spanish stocks: non-residents accounted for nearly 80% of trading volumes. The smooth functioning of the market model, the launch of new initiatives to boost access to the market and the design of a higher number of investment strategies based on listed assets also combined to further improve the Spanish stock exchange s already high liquidity standards in As a result of all the above factors, the number of trades jumped 19.5% last year. Daily IBEX 35 in ,500 10,250 10,000 9,750 9,500 9,250 9,000 8,750 8,500 8,250 8,000 7,750 7,500 7, points -7.52% , points % The IBEX 35, the benchmark Spanish stock index, gained 21.2% in 2013, marking its best year since In parallel, the market capitalisation of the IBEX Medium & Small Cap indices rose 27% over year-end 2012, underscoring the upside presented by mid-cap Spanish stocks. The average bid-ask spread for the securities comprising the IBEX 35 narrowed to 6.4 basis points in the fourth quarter, a significant 4.8 basis point improvement over the average spread in 4Q12 (11.2bp). This spread tightening implies sizeable savings in brokerage costs due to the reduction in the implied cost of the securities traded over s platforms and reflects growth in liquidity and a deeper order book. Source:

8 37 Growth in equity trading volumes Trading volumes in Spanish equities firmed as the year progressed last year to end 2013 at billion by value, year-on-year growth of 0.7%. The turnaround became tangible during the second half of the year and peaked in October, when trading volumes topped year-earlier levels by 30%, marking the highest monthly trading volumes in 27 months. The sea-change in volumes is all the more encouraging as it was accompanied by significant growth in liquidity, underpinned by market positions and growth in the number of trades and orders. The improvement observed throughout the year in bid-ask spreads (which narrowed by 4.8 basis points on average for IBEX 35 stocks) translated into savings in terms of the cost of trading in Spanish equities that can be quantified at over 300 million. The other piece of good news for trading volumes came in early 2013 when the regulator lifted the ban on short positions in Spanish stocks. Nevertheless, threats to the sustained recovery in the volume of trades channelled through the regulated securities exchanges linger, such as the agreement among 11 EU member states (including Spain) to charge a levy on financial transactions and ongoing attempts to curtail high-frequency trading. The most heavily traded stocks in the eurozone In 2013, the shares of six companies listed on the Spanish stock exchange and forming part of the EuroStoxx 50 accounted for 20% of this index s total trading volumes during the year. This percentage is higher than these stocks aggregate weighting in the index (12.38%), not to mention higher than the Spanish economy s weighting in the eurozone in terms of GDP. Banco Santander, BBVA and Telefónica were the first, second and third most heavily traded stocks in the Eurostoxx 50 in 2013, in that order. Inditex was the 9th most traded stock, as in 2012, while Iberdrola and Repsol ranked 20th and 21st, respectively. These stocks performance within the Eurostoxx 50 evidences investors continued interest in blue chip Spanish stocks. Deep liquidity Despite ongoing intensification in competition from international trading platforms, the Spanish stock market continued to account for nearly 90% of overall trading in Spanish -listed shares, bolstering transparency and efficient price formation in a self-fulfilling process. The access services, such as the co-location services, rolled out to accommodate more advanced automated trading systems, coupled with the encouragement of more flexible market players with greater scope for involvement such as the new Non-Clearing Members, helped provide a deeper market for share trading while guaranteeing quality standards and market alternatives. Business drivers: Highly Liquid Market Spanish Blue-chips are the most liquid stocks in the EMU RK Company Source: Bloomberg. (1) As of 31/12/13 FY13 Turnover ( Billion) Extending the upward trend of recent years, the number of trades executed in 2013 rose by 8 million (19.7%) to million. A new record was marked in October, when crossed 6.4 million trades, smashing the prior record of 4.7 million trades hit in May The number of orders processed by the Spanish stock exchange soared from nearly 100 million five years ago to 288 million in Daily avg. FY13 Turnover ( Billion)% Relative weight at EuroStoxx % % % % % % % % % % % % %

9 38 Increased liquidity on the Spanish stock exchange The Spanish stock exchange retains around 90% of trading in the shares of listed domestic companies. One of the reasons for this is surely the powerful downward effect on trading costs of the concentration of trading in a point offering the best supply and demand conditions at all times. In 2013, average spreads on IBEX 35 shares narrowed spectacularly. In many cases, these were half or even less than one year previously. Implicit transactions costs, measured by the average buy-sell spread on the IBEX 35 narrowed by 3.4 basis points in the year, from 0.102% to 0.068%. This positive development was helped on the one hand by the incipient economic recovery and, on the other, by the market returning to normal following the lifting of the short-selling ban. encouraged by the increase in the distribution of scrip dividends and rights convertible into shares for some of the largest listed multinationals. This explains why the number of trades will be around 49 million, an all time high in a year when the economic crisis appears finally to be abating. We cannot discuss liquidity on the Spanish stock exchange in 2013 without talking about the companies that make up the IBEX Medium and IBEX Small. The aggregate effective execution of transactions grew by 122% and 179%, respectively, in 2013, resulting in a narrowing of average spreads on these two indices. Average spread 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% The concentration of trading activity in Spanish company shares on the Spanish stock exchange made a decisive contribution to materialising renewed investor interest in equity instruments. Three Spanish stocks had the highest trading turnover on the Eurostoxx 50 index, with Inditex in ninth position. Foreign investors accounted for 80% of trading in the year, but households also increased their positions in This was 0.00% Ibex Medium Ibex Top Divided FTSE Good Ibex Ibex 35 Source:

10 39 Technology and a wider range of available underlying assets ETFs, warrants and certificates As noted, trading volumes were also buoyed by new services such as the co-location service rolled out in November 2012, which enables user members to install their automated trading systems just a few metres away from the Data Processing Centre, thereby speeding up their market access; this in turn favours liquidity and price formation. The connection from the London Hub and the new (real-time) data feed have also helped make the Spanish market highly competitive and accessible on optimal terms by all classes of investors. Nowadays it is crystal clear that technology props up liquidity. On this point it is worth noting that the vast majority of today s securities markets are electronic exchanges and high frequency trading is just another step in the market s natural evolution. The eight new indicators added to the IBEX family of stock indices are designed to cap risk exposure to the IBEX 35 index within predefined thresholds. The strategy consists of combining an investment in equities with an investment in risk-free fixed income securities and of varying the investment mix depending on trends in market volatility. These new indices were devised to provide underlyings for financial products and to provide investors with a wide range of investment strategies. s efforts to continue evolving and adapting to economic conditions is reflected very positively in the ETF market segment, with increasing trading levels and assets under management. In 2013, the volume of ETFs listed on the Spanish stock market stood at 68, and at 31 December had moved, in aggregate, billion, 56.6% more than the same period the previous year. The real trading star was the ETF category benchmarked to the IBEX indices, which represented 91% of total trading in the market. These ETFs exceeded one billion euros being indexed to the performance of the indicator for the first time, increasing by 248% in the year. ETFs are a highly efficient vehicle for major institutional investors to invest in Spain. And private investors are increasingly looking to this product as they build their portfolios. The IBEX product family continues to grow adding new strategic indices to the fold Interest in Spanish equities has also been fuelled by the continual expansion of the IBEX index family. A new line of IBEX 35 Target Volatility indices was launched in September 2013 with eight new products designed to enable the issuance of investment products with embedded index underlyings (ETFs, warrants, derivatives, etc.), helping portfolio managers to offer their clients a broad range of investment strategies tailored to their investment profiles. Unlike the ETF segment, the warrants market was lethargic, although the number of new references included in the market has increase Even so, this market shrank compared to 2012, due mainly to the significant decrease in trading of Bonus Cap, Warrants and Turbo Warrants, which have been directly impacted by lower market volatility and, in some cases, by their tax treatment. Over the year as a whole, 754 million of warrants and certificates were traded over systems. The new ETFs minisite is the answer to the growing demand for information on this product.

11 40 A resurgence in investment funds Following five years of decline, investment funds grew by 25% in 2013 to billion. Around 85% of this increase came from new subscriptions in 2013, which exceeded 23 billion. The largest fund inflows were into the fixed income and passively managed categories. There were also significant net subscriptions for domestic equity funds, which accumulated 1.20 billion in the year. According to the INVERCO classification, the assets of domestic equity funds doubled in 2013 to over 4 billion. These funds now represent around 2.5% of total funds in Spain, having fallen to 1% during the crisis years. However, whilst meagre, these figures continue showing an investor preference for direct stock market participation through positions in listed shares, according to the quarterly Financial Accounts published by the Banco de España. There were 5,102,948 investment fund participants at year-end 2013, over 600,000 up on December As with funds, the largest increases were in the fixed income and passively managed categories, at 130,000 and 300,000, respectively. Reimbursements/net subscriptions to investment funds in Spain ( ). Monthly figures, million euros 3,900 3,500 3,100 2,700 2,300 1,900 1,500 1, ,300-1,700-2,100-2,500-2,900-3,300-3,700-4,100-4,500 Jan 10 Mar 10 May 10 Jul 10 Sep 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Dec 13 The foreign collective investment institutions segment, which started being marketed in Spain in 2012, continued to grow in the second half of 2013, both in terms of investment volumes and participant numbers. The assets of these institutions increased by 27% in the first six months of the year, exceeding 18.0 billion, and in terms of companies, increasing by 27.2%, to over 40.0 billion. Investors increased by 16.4% to 950,000. Source: INVERCO

12 41 The Stock Exchange as a source of finance The difficulties in securing funding and the recapitalisation requirements and restructuring of the Spanish financial system made a significant contribution to companies looking to the Stock Exchange as a source of funds. Companies started looking to the stock markets as a source of funding in 2012, and this trend continued in The special circumstances resulting from the crisis and, in particular, bank recapitalisation and non-financial sector deleveraging, with simultaneous endeavours to bolster capital, have resulted in many issuers seeking finance through corporate transactions in the markets. Large companies have resorted to new remuneration formulas and rights issues to beef up their balance sheets. Spain s stock market ranked fifth in the World Federation of Exchanges global ranking of investment flows, at 32.1 billion, 11.94% up on the previous year. Spain s stock market confirmed its position as one of the world leaders with capital flows of 32.1 billion in This position is largely the result of intense activity in terms of capital increases, which was at an all time high. These figures include new flotations, IPOs, the market value of shares from rights issues and new listings. Capital increases on Spanish stock markets not linked to exchange of assets ( ). Millions euros 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Source: Capital increases of 32.1 billion in 2013 Investment flows channelled through the stock market -including rights issues, scrips and new issues- amounted to 32.1 billion, up 11.9% on the billion total for These figures show the importance of the market for financing issuers as they strengthen their balance sheets, making the Spanish market one of the world leaders in channelling funding to companies in Funds raised for a variety of reasons Companies have had to turn to the market to bolster their capital for a number of reasons, including conversion of bonds and preference shares, as a way of reducing their debt, enhancing their capital and increasing the liquidity of certain instruments that were restricted in this regar Transactions for such purposes in the year amounted to 8.0 billion, with banks once again playing the leading role, accounting for 91.4% of such issues. Another highlight in this area in 2013 was the large volume of capital increases for which pre-emptive subscription rights were traded in the market, topping billion. One of the major contributor to this was the use of new shares as an instrument for shareholder remuneration through scrip dividends or optional scrip dividends: 9 companies chose this option, with a market value of billion. The other major contribution came from capital increases by nationalised banking entities, which exceeded billion.

13 42 Households increase their investment in shares At the end of the second quarter of 2013, households owned financial assets worth 1.8 trillion, a huge increase over year-end figures for the previous five years, with the portfolio of listed shares representing 7.3% of the total, worth billion, according to Banco de España figures. Over the first two quarters of the year, net purchases of listed shares by households amounted to almost billion, demonstrating the renewed interest of households in these assets. At the same time, households have made significant efforts to reduce their indebtedness, which now stands at almost billion, accelerating the pace of adjustment by increasing their assets and decreasing their liabilities. The result is an increase in net financial wealth of almost billion between June 2012 and June As can be seen from the chart, this reduction has intensified over the last three years, as shown by the negative value for net liabilities contracted by households in 2011, 2012 and The rupture in 2008 and 2009 compared to the previous situation indicates the intensity of the change in the financial situation and wealth of Spanish families resulting from the financial crisis. Net acquisitions of listed shares by Spanish families. Millions euros. 4,781 1ºT ,932 2ºT ,969 3ºT ,543 4ºT ,250 1ºT 2011 Source: Financial Accounts. Banco de España -4,681 2ºT ,926 3ºT ,522 4ºT ,445 1ºT ,130 2ºT ºT ºT ,063 3,890 1ºT ºT 2013

14 43 The MAB plays a crucial role for small companies in the growth companies segment In 2013, the MAB played a crucial role in raising finance for a number of small companies with attractive businesses in the growth companies segment. 9 of the 23 companies listed in this MAB segment increased their capital in the year through 14 transactions; one of these was still outstanding at the end of January Overall, the 13 completed transactions raised 39.6 million in additional funding, which could increase to 46.4 million if the outstanding transaction (Eurona) is fully subscribe This is in addition to the 1.81 million raised by Ebioss Energy, the only company to undertake a secondary offering on the Spanish stock market in Since it was created 5 years ago, the MAB has provided over twenty companies with 180 million of funding. Bell ringing by Gowex, listed on MAB. The Spanish MidCaps take centre stage during the 9th MedCap Forum.

15 44 An excellent year for the MAB: Carbures and Gowex win the European Small and Mid-cap Awards, the first SOCIMIs are listed, trading volumes increase five-fold and an increase in SICAVs. In 2013, two MAB-listed companies, Carbures (CAR) and Gowex (GOW), were worthy winners of the European Small and Mid-Cap Awards. Carbures won the Most International-minded newcomer award and Gowex was chosen as the Best new listed company. The presence of these two Spanish companies in the growth companies segment of the Alternative Equity Market (MAB) has helped to catapult their business, with their market value increasing ten-fold in the case of Carbures and six-fold in the case of Gowex in the year. The new SOCIMI trading segment was inaugurated at the end of the year, with the incorporation of Entrecampos Cuatro SOCIMI, S.A. and Promorent SOCIMI, S.A. SOCIMIs are Spain s version of real estate investment trusts (REITs), which operate in other countries. These are listed companies specialising in real-estate activity that are subject to specific tax treatment. Key features of SOCIMIs include minimum share capital of 5 million and mandatory listing on regulated markets or multilateral trading systems, such as the MAB. SOCIMIs pay zero tax on income and must distribute at least 80% of income among shareholders through dividends. Trading in the MAB growth companies segment was 279 million in 2013, five times higher than the previous year. The number of trades was up eight-fold, at 62,971. Over the year, MAB companies channelled 45 million into the market, 12% up on the previous year, having raised over 200 million since July There were 13 capital increases in The SICAV segment has been operating since 2006 and now lists around 3,050 companies, with a further 121 SICAVs joining the market in 2013.

16 45 The drought in new listings: the first signs of recovery There was a generalised shortage of new stock market listings in most developed economies in 2013, although this differed in intensity. Spain s stock market was no exception. However, the first signs of a gradual change in this trend started to be glimpsed in the third quarter of the year in some of the leading international financial centres. Number of listed companies and market cap At the end of 2013, shares of 3,246 companies were admitted for trading on s trading platform, with 126 new listings and 81 exclusions in the year. Most of these companies were SICAVs (121 listings and 74 exclusions), one of the strongest stock market segments in terms of capitalisation in the year, up almost 16%. Listing. Key figures %...for business Revenue (million euros) 19,851 20, Costs (million euros) -9,444-9, EBITDA (million euros) 10,407 11, for revenue sources Shares Number of listed companies 3,317 3, Capitalisation of shares (million euros) 1,045, , Investment flows channeled through stock markets in new listed shares (million euros) 1, Investment flows channeled through stock marekts in existing listed share (million euros) 30,810 28, Fixed income Admission to listing on AIAF (million euros nominal) 130, , Outstanding public debt (million euros) 793, , Private fixed income (million euros) 709, , Investment flows channeled through the stock market (bill euros) Source: Volume of admissions on AIAF (mill euros nominal) Source: , , , ,444

17 46 Fixed Income Although this business line processes the largest volumes of securities in systems, the specific characteristics of fixed income securities mean that this segment makes only a very limited contribution to the Group s global income statement. In 2013, the total revenues of the Fixed Income unit represented just 2.8% of the Group s total revenues ( 8.42 million) and 2.4% of EBITDA ( 5.22 million). And the contribution of these items fell in 2013 as a result of a 6.4% increase in operating expenses. s Fixed Income unit s income statement was impacted by a significant decrease in trading of corporate debt in 2013, although this was partially offset by increased trading in public debt revenues were million, down 6.9% on the previous year, whilst EBITDA was down 13.6% at million. However, it should be remembered when considering these figures that this Unit does not include revenue from listings, in which fixed income assets play a major role: these revenues are collected by the Listing unit. Fixed income. Key figures %...for business Revenue (million euros) 8,428 9, Costs (million euros) -3,205-3, EBITDA (million euros) 5,223 6, for revenue sources Trading (total million euros) 1,396,716 2,663, Public debt (million euros) 66,854 40, Private fixed income (million euros) 1,286,687 2,566, Other stock market fixed income (million euros) 43,175 56, Source:

18 47 An improving backdrop Unlike 2012, in 2013 tensions in sovereign debt markets for Eurozone economies showed signs of easing. Spain was one of the main beneficiaries of this, with its risk premium falling by one and a half points over the year, whilst the spread between Spanish and German 10-year bonds narrowed by 6.30 points to 2.20 at year-end At the start of 2013, rates on Spain s 10-year bonds were 5%, falling to 4% in May. A subsequent rebound in yields, in line with global bond markets, took rates back to 5% in June; however, they subsequently fell sustainably over the remainder of the year to end at around 4%. The turning point over the last two years came in late July 2012, when the head of the European Central Bank reaffirmed his firm commitment to the euro. The European Central Bank s activity to support the single currency and boost the European economy included two interest rate reductions in 2013: the first of these took place on 2 May, with a 0.25 point reduction to 0.5%; The second took place on 7 November, with a further 0.25 point reduction, taking interest rates to their lowest since the introduction of the single currency. Lower interest rates in secondary markets for public debt have helped the funding of the Spanish Treasury enormously. And the benefits of this spiral in confidence in public debt were not restricted to the Spanish Treasury, they were also felt by leading Spanish companies, such as Gas Natural, Telefónica, Santander, BBVA, Indra, ACS, Acciona, Enagás, Red Eléctrica, OHL and Abengoa, which all issued bonds and commercial paper at lower rates in international markets. With regard to the Spanish fixed income instrument market, 2013 was dominated by public debt, which drained activity from corporate debt, where volumes of activity and trading were down on Total trading in this area of s activity in 2013 was trillion, down 47.6% on the previous year. This decline was basically due to the lower relative volumes of corporate debt we have just mentione 10 year interest rates on debt in Spain and Germany ( ). Daily 8 7 Despite the lower volatility, activity in the Spanish public debt market was somewhat less intense than in Figures from the Spanish Public Debt Book-Entry System, which is supervised by the Banco de España, and for which settlement is carried out by the Group subsidiary Iberclear, show trading was up 6.09% year-on-year at 5.07 trillion in terms of outright cash transactions H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H year interest rates on debt in Spain 10 year interest rates on debt in Germany Source:

19 48 Consolidation of SEND s public debt segment traded billion in 2013, 63.7% up on This mainly relates to electronic trading in government debt, which is channelled mainly through the public debt electronic trading platform, SENAF, which saw a substantial increase in activity. Accumulated trading in 2013 amounted to 64.0 billion, a 50% increase on the previous year. This was also reflected in the number of trades, which increased by 42.8%, mainly in outright trades. However, private fixed income trading was down substantially on 2013 at trillion, a decrease of 49.9%. This was mainly due to lower calls by Spanish banks on the European Central Bank. Volume of trading in the Corporate Debt market. Millions euros 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Source: In 2013, the SEND electronic private fixed income platform managed by the AIAF was consolidated, with activity continually increasing, making its prices a public and accessible benchmark for the market and private investors. The total volume of private fixed income trading through this platform was up 111.4% in the year, with the number of trades managed up 155.6%. Public debt instruments were incorporated in This represents a significant step forward for the transparency of Spanish fixed income instruments for private investors. The Spanish sovereign debt market is now one of the most transparent and consolidated international markets, with an extremely attractive offering. Trading of its instruments over this platform for private investors has opened up a new channel for the Public Treasury for distribution of public debt to retail investors. And these investors now have access to a full range of fixed income assets through SEN SEND has performed very satisfactorily since the incorporation of public debt, in terms of both the value of monthly trading, which has multiplied by 5.2, and in terms of the number of trades, which now account for 25% of all public debt trades. In the technical field, the migration project for the fixed income market to the S/ MART environment has been complete This will improve access for investment in the fixed income instruments traded by.

20 49 The birth of the MARF The other major development for in terms of fixed income products in the year was the creation of the Alternative Fixed Income Market (MARF). This market is a Spanish government initiative to comply with the Memorandum of Understanding and other commitments to the European Union to provide small and medium-sized companies with an alternative mechanism to complement traditional bank funding, which was previously practically the only source. As a result, such companies can now access the savings of institutional investors at very competitive costs. The creation of this platform has brought the Spanish fixed income market onto an equal footing with other European countries that already offer such alternatives. The MARF Fixed Income market, in focus in the four Spanish stock exchanges. Madrid. First steps for the MARF Following its launch in early-october 2013, the Alternative Fixed Income Market (MARF for its initials in Spanish) authorised its first members and registered advisors at the end of that very month. The first to register were Arcano, Banco Sabadell and Solventis as Registered Advisors, with Banco Bilbao Vizcaya Argentaria (BBVA), Banco Sabadell and Bankia joining as members. In December, NCG Banco, Renta 4 Banco and Ahorro Corporación joined as members, and Afi, KPMG, Didendum, Deloitte, Renta 4 Banco, Ahorro Corporación and Riva & García as Registered Advisors. Every company with shares admitted to the MARF must designate a registered advisor, making this a crucial role. Registered advisors must have experience in advising companies on their stock market activities, and in preparing and reviewing prospectuses and advising on compliance with applicable obligations and requirements. The MARF incorporated its first issue on 20 December. This 50 million issue was made by COPASA, advised by Didendum. The issue was rated BB with a positive outlook by the Axesor rating agency. Welcome of the MARF in Barcelona.

21 50 MEFFREPO maintains high transaction volumes The Central Counterparty (CCP) for repos has maintained the volumes achieved in 2012, with trading of around billion and over 1,000 average monthly trades. It is noteworthy that the average outstanding balance on current trades for which the CCP acts as the counterparty has exceeded the average outstanding balance in 2012 by over 5.00 billion, increasing from billion to billion. The activities of this business unit over the year are a faithful reflection of the company s philosophy of keeping abreast of, and evolving with, economic conditions. The SEND platform aims to make fixed income markets more accessible to private investors, promoting transparent access and taking advantage of the likely increase in the interest of households in such products. Furthermore, the creation of the MARF aims to provide alternative funding sources for companies that cannot access, or do not want to rely exclusively on, traditional bank financing, as in other European countries. The Group has the know how and experience to develop such markets and platforms rapidly whilst keeping tight control of costs.

22 51 Derivatives The Derivatives business unit experienced the highest growth in the Group compared to 2012, with revenues up 9% on the million in 2012 at million. Derivatives. Key figures %...for business Revenue (million euros) ,0 Costs (million euros) ,6 EBITDA (million euros) ,4...for revenue sources Trading (number of trades) ,6 Derivatives on indices IBEX 35 futures (number of trades) ,6 IBEX 35 Mini-futures (number of trades) ,0 IBEX 35 Div. impact futures (number of trades) ,8 IBEX 35 options (number of trades) ,0 Notional total value (million euros) ,9 Share derivatives Share futures (number of trades) ,7 Share dividend futures (number of trades) ,6 Share options (number of trades) ,9 Notional total value (million euros) ,3 Fixed income derivatives 10 year bond futures (number of trades) ,8 Open position (number of trades) ,5 Total trades ,6 Source:

23 52 Costs were also reduced by million. As a result, EBITDA climbed 17.4% in the full-year to million. These figures have enabled a significant increase in the weighting of this area in the Group s global operating result, contributing 9% of total revenues and 7.7% of profit (8.7% and 6.9% in 2011). The volume of trades in s derivatives market in 2013 fell back slightly on the previous year at 54.7 million, 18.6% down on 2012, with the decrease concentrated in equity options and Mini futures contracts. However, trading in large IBEX 35 futures and IBEX 35 options increased significantly. Activity in the derivatives market in 2013 reflected the improved financial situation for Spain, with a recovery in the appetite of foreign investors driving trading in contracts on the IBEX 35, particularly in the star product on the market: IBEX 35 futures. Futures and Options traded on Number of contracts traded linked to Equities 100,000,000 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 In 2013 the increase in trading in IBEX 35 was noteworthy, with an increase of 17.6%, and with over 500,000 contracts being traded in June, October and November. Trading in IBEX 35 options increased by 23%, beating the figures for the last four years, with over 500,000 contracts being traded in June, August, October and December. The total number of trades was up 9.6% in the year, at 4.3 million. There were a number of major changes to MEFF s company structure in In order to comply with the new European EMIR regulations on financial instrument markets, the operations of this market have been divided, separating out counterparty and clearing activities for products traded into the company Clearing, which is responsible for all of s central counterparty activities. 10,000, Source:

24 53 MEFFPower grows exponentially and now has 56 participants MEFFPower had an excellent year, with the volume of registrations increasing four-fold and the number of participants increasing by 44%. The accumulated volume to November was 30.6 TWh, compared to 7.7 TWh in the same period of The number of trades registered in 2013 increased three and a half times, with 3,587 trades. October was the highpoint for the year, with a volume of 6.4 TWh and 682 trades registere MEFFPower is Clearing s electricity market service, enabling registration of trades in Spanish electricity OTC derivative. This service was launched in 2011 and has since consolidated its activities, being supported by the main domestic and international energy companies, leading investment banks, funds, and medium-sized European energy trading and marketing entities. MEFFPower: Registered volume and participants 7,000, MWh 6,000, ,000, ,000, ,000, ,000, ,000, dec-12 jan-13 feb-13 mar-13 apr-13 may-13 jun-13 jul-13 aug-13 sep-13 oct-13 nov-13 dec-13 Nº Regulation of OTC derivatives Regulatory pressure on derivates markets remained intense in 2013, as it has been since the outbreak of the crisis. The reforms driven by global regulators, based on general guidelines established by the G20 in 2009, aim to channel trading in OTC derivatives, which are traded bilaterally and not subject to trading rules or standard trading conditions. The huge volume of such trading increases systemic risk and clouds transparency in this market. The regulations aims to channel trading in such derivatives towards organised markets, with settlement through central counterparties (CCPs) and registration in Trade Repositories for OTC derivatives that cannot be standardise The notional volume of ITC derivatives globally in June 2013 was $693 trillion, according to the BIS (Bank for International Settlement). The notional value of derivatives contracts traded through stock markets and organised markets globally meanwhile was just $66 trillion, less than 10% of the total notional value of outstanding derivatives worldwide. Volume registered MWh Source: Num. Participants Lineal (volume registered MWh)

25 54 Clearing and Settlement The results of this business area cannot be considered separately from the rest of the company s business. Revenues from settlement, registry and issuer services increased by 3.1% on 2012, to million. Despite a slight increase in costs to million (0.3%), EBITDA increase by 3.7% to million. Stripping out the impact of the default management service s activity on the unit s performance, settlement revenue increased by 15% on the previous year, whilst registration revenue fell by 3.6%. The nominal volume registered for fixed income fell by 4.8% on the previous year, but increased for equities by 28.1% on 2012, to billion. Clearing and Settlement. Key figures %...for business Revenue (million euros) ,1 Costs (million euros) ,3 EBITDA (million euros) ,7 for revenue sources Number of trades settled ,4 Assets in custody (nominal registered at end of period) (billion euros) ,4 Source: Trades settled. Millions Assets in custody. Nominal registered. Millions euros ,118 2, ,513 1,564 1,664 1,246 1,362 1, Source: Source:

26 55 Target2 Securities (T2S) Work on the project to establish a single platform for the settlement of securities, backed by the Eurosystem, continued in European Central Depositories have been signing up to the framework agreement, which entails a commitment to carry out the adaptations necessary to adapt and incorporate their settlement activities into Target2 Securities. The CSD Steering Group (CSG), chaired by Iberclear CEO Jesús Benito, has been responsible for particularly important work on the new governance structure for Target2 Securities. REGIS-TR authorised by ESMA to begin operations REGIS-TR is a Trade Repository for derivatives developed by Iberclear and Clearstream. After the launch of operations, in the middle of December of 2010, REGIS-TR started achieving a higher profile among industry participants and regulators by 2011, and is now one of the leading Trade Repositories on the European and global levels. REGIST-TR comes into operation REGIS-TR was granted authorisation to operate as a Trade Repository for derivatives on 7 November REGIS-TR provides its clients with a simple and efficient solution for reporting their derivative transactions in the European Union, pursuant to the EMIR regulation. It also enables clients to comply with the MiFID Directive and the REMIT regulations for the energy sector. The reporting obligation commenced on 12 February All derivative transactions and lists of all asset classes can be reported to comply with reporting obligations. REGIS-TR collects and administers details of transactions reported by its users, giving market participants and regulators an overview of derivative positions, which was not previously possible. REGIS-TR complements its services with other valueadded solutions, such as connection to collateral and reconciliation services, and technological solutions designed to enable efficient, low-cost, reporting. REGIS-TR came into operation on 12 February Detail, activity pannels Bolsa de Madri

27 56 Collateral management services Iberclear s Collateral Management project will come into operation shortly. Implementation has now been completed and a number of entities have already accessed the system to enter transactions. These services will improve the company s offering, enabling financial entities to optimise the guarantees available for their funding transactions. The service will be launched with bilateral transactions among participants, enabling the collateralisation of both repo and free-of-payment transactions. The service will also shortly be extended to monetary policy transactions with the Banco de España and the guarantees that entities have to deposit with Clearing. The National Emissions Rights Registry: Changes following the opening of the EU registry 2013 saw the definitive implementation of the new European Union Registry, as the single connection platform for the 31 member states, in accordance with EU Regulation 1193/2011, of 18 November. The Registry will be fully operational from 20 June. Iberclear will continue to carry out National Administrator functions within the Single Registry, in direct coordination with the Commission. It provides a help desk, through its own Customer Service Centre, to all owners of accounts registered in the Spanish Registry. Clearing centralises s Central Counterparty activities In 2013, the Spanish stock exchange worked intensively to respond effectively and rapidly to the new regulatory requirements we have mentione The European EMIR Regulation requires the separation of trading and clearing activities. Until 2013, MEFF was both the official market and the central counterparty. As a result of the separation of functions, MEFF now is only responsible for market activity as the Sociedad Rectora del Mercado de Productos Derivados (Derivatives Products Market Management Company) whilst Clearing now acts as the central counterparty. Clearing now channels trades in the three segments of Group activity: financial derivatives, public debt repos and electricity derivatives. In future, it will also be expanded to include the cash segment for equity and fixed income instruments, which is being prepared as part of the Clearing and Settlement Reform in Spain. Clearing, encompasses all the CCP activity in. The clearing and settlement area is a clear example of the Group s capacity to adapt and grow as a company, responding adroitly to new business opportunities. This is demonstrated by the creation of REGIS-TR to grasp the opportunity created by the OTC derivatives reporting requirement established under EMIR, and the speed with which MEFF was split up with the creation of Clearing, also in response to European regulation. The company has been able to maximise its resources to meet these new challenges effectively, whilst finding ways to diversify its operations and continue growing.